Capital-to-Risk (Weighted) Assets Ratio (CRAR)

  • October 8, 2021
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Capital-to-Risk (Weighted) Assets Ratio (CRAR)

Subject – Economy

Context – Srei firms found ever-greening NPAs, in payment default

Concept –

To know about CRAR, please click here.

To know about ‘RBI supersedes boards of two debt-laden Srei companies’, please click here.

To know about NPA and its classification, please click here.

Ever-greening of NPAs

  • The evergreening of loans is a well-known exercise, in which banks revive a loan on the verge of default by granting further loans to the same firm.
  • Evergreening is a ploy to mask loan default by giving new loans to help delinquent borrowers repay or pay interest on old loans.
    • For years, it was central to functioning of IL&FS.
  • The consequences of evergreening are well known: a reduction in reported defaults in the short run, followed by an eventual explosion in default rates.
  • The pattern has manifested in all major economies, including the US, the European Union, Japan and India.
Capital-to-Risk (Weighted) Assets Ratio (CRAR) economy